On April 1, 2015, Hepburn Company issued 8 percent bonds with aface value of $800,000. The bonds were issued at a price to yieldat 10 percent return. The bonds pay semiannual interest on April 1and October 1. The bonds are dated April 1, 2015, and are due infive years. At the time of issuance, Hepburn paid $4,000 for legalcosts and brokerage expenses associated with the bond issuance. Thecompany uses the straight-line method of amortization for issuecosts and the effective interest method of amortization for bondpremium or discount and records amortization on each of thesemiannual interest payment dates. Hepburn Companyâs year endsDecember 31. On June 1, 2016, Hepburn retired $200,000 of bonds at103 plus accrued interest.
Required:
Record all entries necessary on October 1, 2015, related to thebonds.
Record all necessary adjusting entries on December 31, 2015.
Determine the amount of gain or loss on the bonds redeemed onJune 1, 2016.
Record the entries necessary for the bond redemption.
Determine the amount of discount on bonds and the amount ofissue costs that should be amortized for the period ended October1, 2016.
On April 1, 2015, Hepburn Company issued 8 percent bonds with aface value of $800,000. The bonds were issued at a price to yieldat 10 percent return. The bonds pay semiannual interest on April 1and October 1. The bonds are dated April 1, 2015, and are due infive years. At the time of issuance, Hepburn paid $4,000 for legalcosts and brokerage expenses associated with the bond issuance. Thecompany uses the straight-line method of amortization for issuecosts and the effective interest method of amortization for bondpremium or discount and records amortization on each of thesemiannual interest payment dates. Hepburn Companyâs year endsDecember 31. On June 1, 2016, Hepburn retired $200,000 of bonds at103 plus accrued interest.
Required:
Record all entries necessary on October 1, 2015, related to thebonds.
Record all necessary adjusting entries on December 31, 2015.
Determine the amount of gain or loss on the bonds redeemed onJune 1, 2016.
Record the entries necessary for the bond redemption.
Determine the amount of discount on bonds and the amount ofissue costs that should be amortized for the period ended October1, 2016.
Related questions
| District WaterCompany issued 10-year bonds with a face value of $100,000 and astated interest rate of 8.0%. | ||||
| The bonds are dated April 1,2016, and call for semiannual interest payments on each April 1 andOctober 1. | ||||
| Due to market fluctuations,the bonds actually sold to yield 10.0% per year. | ||||
| 1. Compute the amount received for thebonds. | ||||
| 2. Compute the first interestand amortization amounts for the October 1, 2016, payment. | ||||
| 3. Prepare journal entries forthe issuance of the bonds and for the first interest payment. | ||||
| 4. Compute the second interestand amortization amounts for the April 1, 2017, payment. | ||||
| SOLUTION: | ||||
Szmanda Company issues 13%, five-year bonds, on December 31, 2015, with a par value of $210,000 and semiannual interest payments.
| Semiannual Period-End | Unamortized Discount | Carrying Value | ||||||
| (0) | 12/31/2015 | $ | 7,200 | $ | 202,800 | |||
| (1) | 6/30/2016 | 6,480 | 204,240 | |||||
| (2) | 12/31/2016 | 5,760 | 204,240 | |||||
Use the above bond amortization table and prepare journal entries to record
(a) the issuance of bonds on December 31, 2015;
(b) the first interest payment on June 30, 2016; and
(c) the second interest payment on December 31, 2016.
